Kerala HC Sets Aside NCLT Order Refusing To Implead Alleged Share Transferees In Company Mismanagement Case

The Kerala High Court has set aside an order of the National Company Law Tribunal, Kochi Bench, refusing to implead two alleged share transferees in a company petition alleging mismanagement, holding that their presence was necessary for effective adjudication of the dispute over the original petitioners' shareholding.

Justice Harisankar V Menon held that the alleged transferees were proper parties even though no specific relief had been sought against them, as their presence was necessary to adjudicate the preliminary objection that the original petitioners no longer held shares in the company.

The court was hearing a petition challenging the NCLT's order rejecting an application to implead two alleged share transferees in a company petition alleging mismanagement of Tharakan Web Innovations Private Limited.

The company had contended before the NCLT that shares held by two of the petitioners in the company petition had been transferred to third parties. Following an application seeking production of the relevant documents, the NCLT directed the company to produce the share transfer forms. The documents indicated that the shares had been transferred to the present petitioners, Sandeep Chandrasenan and Anishmon Thomas.

The original petitioners subsequently sought to implead them in the company petition. The alleged transferees, however, denied signing the share transfer forms and contended that their signatures had been fabricated.

The NCLT rejected the impleadment application, observing that no specific relief had been sought against the proposed parties, the existing pleadings did not challenge the validity of the transfers, and no amendment had been sought. It also found that the application was belated.

Challenging the order, the alleged transferees approached the High Court, contending that their impleadment became necessary only after the share transfer forms were produced.

The company opposed the writ petition, arguing that the NCLT order was appealable under Section 421 of the Companies Act, 2013, and that the impleadment application had been filed after considerable delay.

The Court first considered whether it could exercise its writ jurisdiction under Article 226 of the Constitution despite the availability of an alternative remedy under Section 421 of the Companies Act, 2013.

Relying on the Supreme Court's decision in Ghanashyam Mishra and Sons Pvt Ltd v. Edelweiss Asset Reconstruction Company Ltd, the Court observed that the availability of an alternative remedy would not bar writ jurisdiction where there was a violation of the principles of natural justice.

On the violation of natural justice, the Court observed that the original petitioners learnt the identities of the alleged transferees only after the share transfer forms were produced before the NCLT. It held that they were justified in seeking their impleadment and that refusing to consider the request violated the principles of natural justice.

Referring to Order 1 Rule 10 of the Civil Procedure Code, the Court noted:

“Under the afore provisions, an impleading is permitted in a situation where there is a right to relief against such party and in a situation where no effective adjudication can be carried out in the absence of such party.”

The Bench noted that the original petitioners disputed the alleged share transfers and sought production of the relevant documents after the company questioned their shareholding. The NCLT directed production of the share transfer forms, following which impleadment was sought. The alleged transferees had also appeared before the NCLT, denying the transfers and alleging fraud by the company.

“Therefore, this Court is of the opinion that for an effective adjudication on the preliminary objection raised by the respondents 4 to 9 herein before NCLT, the petitioners herein were proper parties, even though there were no prayers raised against the petitioners herein.” it held

Accordingly, the Court allowed the writ petition, set aside the NCLT's order and allowed the application seeking impleadment of Sandeep Chandrasenan and Anishmon Thomas in the pending company petition.

For Petitioners: Senior Advocate Santhosh Mathew and Advocate A Kevin Thomas

For Respondents: Advocates Harikumar G (Gopinathan Nair), Isaac Thomas, Abraham mathan, Yeshwanth C.R, P.G Chandapillai Abraham, Irene Babu and Jayasankar R